Tips for Buying a Home When You're Self-Employed

Self-employment has its perks, like making your own schedule, negotiating your pay, and maybe even have a little more free time to do the things you love! If you're self-employed or a freelancer, you're not alone -- about a third the U.S. workforce is self-employed, and it's projected to increase to 42% in the next 2 years

Our office has also seen a rise in self-employed home loan applicants --and we’re excited to see the shift. In many ways, self-employment means freedom, and anything that helps our clients gain freedom in their lives and finances is something we want to be a part of.

With that said, there are a few more hoops that self-employed applicants need to jump through when applying for a home loan. It’s nothing too difficult, just a few more steps to verify income. Find out precisely what it takes to apply for a home loan when you’re self-employed (and see how close you are to even more independence with a low-rate home loan!

Getting Ready to Buy a Home When You’re Self-Employed

Traditionally, when applying for a home loan, applicants supply their W-2’s. As a freelancer or self-employed worker, you’ll need to prove your income and taxes differently. Here’s how to do it Your 1099 If you’re self-employed, you’ll report your taxes with a 1099 form rather than W-2’s. Freelancing can sometimes mean irregular income --meaning you'll earn a little more one month and a little less the next.

So we have a more accurate picture of your income, we'll ask for more financial information. Typically, this means providing two years worth of tax returns. If you’ve been self-employed for less than two years or don’t have tax returns for the previous two years, please call us to help you figure out the fastest way to qualifying for a home loan.

Saving for a Downpayment

Whether self-employed or not, the more you can put down for a home the better it is. Not only will your monthly payments likely be lower, but you’ll end up paying less over the life of the loan. But when you’re a freelancer, your savings takes on an additional meaning -- it proves financial stability. Financing the self-employed borrower can be considered a little riskier, which is why more financial information is required.

However, with a savings backing you up, your application will look all the more favorable, getting you on the fast track to approval.

Don’t have much to put down? That’s okay! Call us, and we can help you find a home loan with flexible requirements and can help you find ways to come up with a down payment fast.

Review Your Credit

We’ve talked about credit scores many times here on our blog. That’s because your credit is so critical to your home loan rate and which loans you qualify for. And when you’re self-employed, your credit score is all the more vital! We suggest that you review your credit as soon as possible --you can even do that now by asking for a free credit report from the credit bureaus (you’re entitled one free report a year).

You can also let us request your credit report. When you apply for a loan with us, we’ll request your credit report and review it with you. If there are any discrepancies, we can give you tips on how to sort it out and possibly raise your score.

Be Thoughtful with Your Tax Deductions

One of the benefits of independent work is the ability to write-off expenses on your taxes. Expenses such as your Internet, cell phone, travel, lodging, supplies, and the like are all reasonable write-offs. But here’s a word of caution – the more you deduct, the less income is reported on taxes. So, if you’re in the market to buy a home or invest in property soon, reconsider how much you’re deducting from your taxes.

Learn About Your Mortgage Options

There’s a loan for every applicant, especially the self-employed! Besides the favorable rates and stability that a conventional home loan offers, there are other options that may be a good fit: FHA loan – Requires only 3.5% down! USDA loan –Zero down on homes in qualifying rural areas. VA loan – For active duty military, veterans and their families offering zero down.

Self-employment shouldn’t hold you back from reaching homeownership freedom. All it takes is some planning, thoughtful financial choices, and applying with us. Get started today with our secure online application.